The combination of political and legal stability, along with a favourable tax environment and corporate legislation, makes the UAE an attractive jurisdiction for setting up private foundations. Registering a foundation in the UAE can help achieve a range of objectives, but choosing the right structure requires a clear understanding of the key features of its legal framework.
- Private foundations are separate legal entities used for asset protection, tax optimisation, succession planning, and holding shares in wider corporate or family structures.
- UAE foundation registration is primarily carried out in autonomous free zones such as ADGM, DIFC, and RAK ICC, each with its own corporate rules.
- ADGM foundations operate under English common law, require a Charter and By-laws, mandate a UAE or GCC nexus, and may appoint a Guardian and Registered Agent.
- DIFC and RAK ICC foundations follow English law principles, require constitutional documents, impose accounting and reporting duties with fines, and have distinct governance and liquidation rules.
Purposes of Setting Up Private Foundations
A private foundation is a separate legal entity that owns the assets transferred to it in its own name, deals with third parties in its own right, and operates under its charter.
Foundations are commonly used to achieve a range of objectives connected with asset structuring and management. For example, they can be used:
- to hold and manage assets for specific purposes or for the benefit of a defined group of persons, including for asset protection;
- to plan succession in a transparent and controlled way, reducing the risk of inheritance disputes;
- to optimise the tax burden within the limits permitted by law; and
- as part of a holding structure, to hold shares or equity interests in other companies.
Foundations in the UAE Legal System
Corporate regulation in the UAE is multi-layered and depends on where the legal entity is registered. This is why, when setting up a company in the UAE, it is important to decide whether it will be registered:
- on the UAE mainland;
- in one of the many UAE free zones; or
- under a special regime that allows a UAE offshore company to be incorporated.
The incorporation process and the company’s ongoing compliance requirements depend on the chosen jurisdiction and the corporate laws that apply to it.
When it comes to setting up and running foundations, UAE free zones are particularly important. Although free zones form part of individual emirates, they have a high degree of autonomy in corporate regulation. This allows them to offer more attractive conditions for setting up and operating structures.
In practice, foundation registration in the UAE is carried out within free zones that offer the relevant legal forms and special rules governing the ongoing operation of foundations. The main UAE free zones where you can set up a private foundation include:
- ADGM, Abu Dhabi;
- DIFC, Dubai; and
- RAK ICC, Ras Al Khaimah.
Below we look at the key features of foundations in these jurisdictions.
Legal Regime for Foundations in ADGM
Overview of the ADGM Free Zone and Foundation Legislation
One of the key features of Abu Dhabi Global Market (ADGM) is that English common law applies directly within this free zone, including for corporate matters and dispute resolution.
This is particularly important for setting up a foundation in ADGM, as English law is widely seen as one of the most practical and reliable legal systems for establishing and managing such structures.
The main piece of legislation governing the formation and operation of ADGM foundations is the ADGM Foundations Regulations 2017, as amended.
Key Features of an ADGM Foundation
An ADGM foundation includes the following persons:
| Person within the foundation | Brief description |
|---|---|
|
Founder (one or more) |
Can be either an individual or a legal entity. |
|
Foundation Council |
Consists of at least two persons (individuals or legal entities). It is mainly responsible for achieving the foundation’s purposes and managing its assets, and it also takes other actions in line with the foundation’s charter. |
|
Guardian |
The Guardian’s main role is to protect the foundation and ensure its purposes and interests are upheld. In certain cases, appointing a Guardian is mandatory. |
|
Registered Agent |
This is not a mandatory role, but a Registered Agent may be appointed to simplify dealings with the authorities. |
The key constitutional documents of an ADGM foundation are its:
- Charter; and
- By-laws.
To register an ADGM foundation, the value of the assets initially transferred to it must be at least USD 100 (or the equivalent in another currency). The foundation’s assets may consist of any type of property.
A distinctive feature of an ADGM foundation is the requirement to have a “nexus” with the UAE or the Gulf Cooperation Council (GCC) region. This connection may be demonstrated, for example, through:
- holding assets or investments in the UAE or the GCC region;
- being owned or controlled by persons connected with the UAE or the GCC region;
- carrying on activities aimed at the region; or
- any other economic or management link showing that the foundation has an interest or influence in the region.
Legal Regime for Foundations in DIFC
Overview of the DIFC Free Zone and Foundation Legislation
Dubai International Financial Centre (DIFC) is one of the leading financial hubs in the region.
From a foundation set-up perspective, the most important features of this free zone include:
- the use of English law principles as the basis for its own corporate legal framework; and
- its own dispute resolution system.
The main legislation governing the formation and operation of DIFC foundations is the DIFC Foundations Law (DIFC Law No. 3 of 2018), as amended.
DIFC Foundation Registration Process
A DIFC foundation may be established either for charitable purposes or for the benefit of specific persons or a class of persons. Any type of property may be transferred to the foundation.
To register a DIFC foundation, you must submit an application to the registrar signed by the founder(s) and pay the applicable fee.
The following key foundation documents must be submitted with the application:
| Document | Brief description |
|---|---|
|
Charter |
This is a mandatory document. It must include:
The Charter may also include other provisions. |
|
By-laws |
As mandatory elements, the foundation’s By-laws must set out:
The By-laws may also cover other matters. |
After registration, the foundation is issued with a licence.
DIFC Foundation Governance and Grounds for Liquidation
A DIFC foundation includes the following persons:
| Person | Description |
|---|---|
|
Founder |
May be an individual or a legal entity. The Founder may also act as the Guardian and as a member of the Foundation Council. |
|
Foundation Council |
The foundation’s governing body. It is responsible for achieving the foundation’s purposes and administering its assets. The Council must have at least two members. The Guardian cannot be appointed as a Council member. |
|
Guardian |
Appointing a Guardian is mandatory if the foundation has a charitable purpose or another specific non-charitable purpose. A Guardian is not required where the purposes involve transferring all or part of the foundation’s assets to a specified person or class of persons. A Council member cannot be appointed as the Guardian. |
|
Registered Agent |
Appointing a Registered Agent is not mandatory. |
It is important to note that a DIFC foundation is subject to DIFC corporate requirements on accounting records and the preparation and filing of financial statements. Penalties apply for non-compliance. In particular, a fine of up to USD 10,000 may be imposed where:
- accounting records or financial statements are not maintained;
- they are not submitted in the required manner; or
- information provided is knowingly false, misleading, or materially inaccurate.
A DIFC foundation may be liquidated in the following cases:
- expiry of its term, if it was established for a fixed period;
- where the foundation’s purpose has been achieved or can no longer be achieved;
- where liquidation is required under the Charter or the By-laws;
- pursuant to a court order (for example, in the event of insolvency); or
- where the registrar strikes the foundation off the register (for example, if the foundation’s activities breach applicable laws).
Upon liquidation, any remaining assets are distributed in accordance with the Charter and the By-laws.
Legal Regime for Foundations in RAK ICC
Overview of the RAK ICC Free Zone and Foundation Legislation
Ras Al Khaimah International Corporate Centre (RAK ICC) is one of the three main free zones in the Emirate of Ras Al Khaimah and one of the three UAE free zones where an offshore company can be incorporated.
The RAK ICC legal framework is also based on English law principles. In addition, RAK ICC foundations may choose the DIFC Courts or the ADGM Courts as the forum for dispute resolution.
The main legislation governing the formation and operation of RAK ICC foundations is the RAK ICC Foundations Regulations 2019, as amended.
RAK ICC Foundation Registration Process
An RAK ICC foundation may be established either for exclusively charitable purposes or for the benefit of specific persons or a class of persons.
An RAK ICC foundation is registered by filing an application that includes:
- the foundation’s name;
- the full name, nationality, and address of each founder, each proposed member of the Foundation Council, and the proposed Guardian (if any);
- the name and address of the foundation’s Registered Agent in RAK ICC;
- the foundation’s registered office address; and
- any other information requested by the registrar.
The Charter and the By-laws must be submitted with the application. Their structure and key elements are broadly comparable to the constitutional documents used for DIFC and ADGM foundations.
An RAK ICC foundation must have a legal address in the UAE for receiving notices and communications. This can be the Registered Agent’s address.
To register a foundation, the initial endowment must be at least USD 100 (or the equivalent in another currency). The endowment may consist of any type of property.
RAK ICC Foundation Governance and Grounds for Liquidation
An RAK ICC foundation may be established by both individuals and legal entities.
The Founder may also be a member of the Foundation Council, which is responsible for achieving the foundation’s purposes and administering its assets. In certain cases, the foundation must appoint a Guardian, whose role is to:
- ensure compliance with the foundation’s constitutional documents and RAK ICC legislation; and
- oversee the Foundation Council’s management of the foundation.
An RAK ICC foundation must appoint a Registered Agent.
RAK ICC rules also require an RAK ICC foundation to maintain accounting records at its registered office. These records must be kept for five years from the date they are prepared. If requested by the registrar, the accounting records must be provided within 14 days.
Failure to comply with these obligations may result in the following fines:
| Breach | Maximum fine |
|---|---|
|
Failure to maintain accounting records |
AED 5,000 |
|
Providing information that is knowingly false or misleading |
AED 20,000 |
|
Failure to provide accounting records within the required timeframe upon the registrar’s request |
AED 5,000 |
Conclusion
The legal framework in UAE free zones, especially in jurisdictions whose legislation is based on English law principles, is particularly well suited to establishing and administering UAE foundations. This structure can be useful for:
- asset structuring and protection;
- long-term asset management; and
- succession planning and investment.
Although the regulation of foundations in DIFC, ADGM, and RAK ICC is broadly aligned and follows a similar approach, each jurisdiction has its own specific rules that can be important when choosing where to register a foundation.
